Result Update Report: HPG - Domestic steel demand dictates profit recovery progress
In spite of its ability as a leading firm to have the most realistic market outlook, HPG did not manage to avoid net losses in the two most negative quarters of the steel industry. We believe that recent business results not only reflect the impact of the world and domestic markets on HPG's production and sales activities, but also show the company’s flexibility and adaptability in terms of operating policies, namely purchasing and production. In the coming quarters, HPG will face certain challenges in revamping sales, reducing production costs and speculating/hedging material prices. We maintain that the most difficult period of the steel industry has passed, but the recovery progress of the Real Estate - Construction market might not be substantial to bring comprehensive improvement to the steel sector. FCFF and P/B valuation of the stock is determined at VND 20,950/share, as of the closing price on April 3rd, 2023. With its 2022 results, it is likely that HPG will not pay a cash dividend this year. Therefore, we a NEUTRAL view on the stock, and recommend that investors who prefer HPG and steel stocks in general closely monitor their output and sales volumes to properly assess the recovery prospect and to find a reasonable buying point for the long-term.
Hoa Phat Group JSC. Hoa Phat Group Joint Stock Company is a Vietnam-based company primarily engaged in the steel sector. The Company's operation is organized under four segments, including Steel segment, which manufactures steel and cast iron in various forms, such as sheets, bars, rolls and pipes, as well as steel-making materials and steel drawing machinery; Industrial segment, which produces and trades construction and mining vehicles and equipment, along with household appliances, refrigerators, home and office furniture; Agriculture segment, which farms cattle and poultry, processes and preserves meat, as well as manufactures and distributes animal feeds, fertilizers and agricultural supplies, and Real Estate segment, which constructs civil engineering projects and leases houses, offices and land.
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